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Money Market and Capital Market

The money market and capital market are both components of the financial market. The money market deals with short-term lending and borrowing of up to one year, using instruments like treasury bills and commercial paper. The capital market focuses on long-term lending and borrowing of over one year using stocks, bonds, and other securities. While the money market is informal and low risk, the capital market is more structured and involves higher risk due to illiquidity and long maturities.

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99 views1 page

Money Market and Capital Market

The money market and capital market are both components of the financial market. The money market deals with short-term lending and borrowing of up to one year, using instruments like treasury bills and commercial paper. The capital market focuses on long-term lending and borrowing of over one year using stocks, bonds, and other securities. While the money market is informal and low risk, the capital market is more structured and involves higher risk due to illiquidity and long maturities.

Uploaded by

shane
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MONEY MARKET CAPITAL MARKET

Definition It is a component of financial market where It is a component of financial market where


short-term lending and borrowing takes long-term lending and borrowing takes place.
place.

Time Period The money market make an agreement for The capital market compact in borrowing or
borrowing and lending of short-term funds lending of long-term funding which means
which shows time period is one year or less. the time period is more than a year.

Types of Money market generally deals in promissory Capital market deals in stocks, equity shares,
Instruments notes, commercial paper, certificate of debentures, bonds, securities, etc.
Involved deposits, treasury bills, etc.

Purpose The money market fulfills the short-term The capital market fulfills the long-term
credit needs for small investments or credit needs for business establishment,
businesses. expansion fixed asset purchases.

Functional The money market increase the liquidity of The capital market stabilizes the economy
Merit funds in the economy. due to mobilization of long-term savingse.

Institutions The money market contains the central bank, The capital market involves stockbrokers,
Involved/Types financial banks, commercial banks, financial mutual funs, underwriters, stock exchangesn
of Investors companies, non-bank financial institutions, insurance companies, mortgage banks, etc.
etc.

Nature of Money markets are informal in nature and is In capital markets, things are organized in a
Market not structured. formal way.

Maturity The maturity of money market instruments is The maturity of capital market instruments is
Period generally up to one year. longer and they do not have stipulated time
frame.

Risk Factor Since money market is liquid and the Due to less liquid in nature and long maturity,
maturity is less than one year, the risk the risk in capital market ic comparatively
involved is low. high.

Return on The return in money markets are usually low. The returns in capital markets are high
Investment because of high duration.
Financial markets refer broadly to any marketplace where trading of securities occurs. It is where buyers and sellers
engage in the trade of assets such as equities, debt instruments (e.g., bonds), currencies, and derivatives.
Financial markets are classified into the money market and the capital market.
The money market is where short-term funds are raised through the buying and selling of short term debt securities
such as commercial papers.
The capital market is where long-term funds are raised through the bond market, which deals with long-term debt
securities such as bonds, the stock market which deals with equity securities or stocks.

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